Rising oil prices triggered by the conflict in the Middle East are raising concerns about a fresh wave of economic pressure for UK retailers, with economists warning that a prolonged disruption to global energy supplies could push the UK economy towards recession.
The crisis has intensified after maritime traffic through the Strait of Hormuz (a route that normally carries around 20 per cent of the world’s traded oil and liquefied gas) was effectively halted amid escalating military tensions involving Iran.
The disruption has already sent oil markets into volatile territory, with prices briefly surging above $115 per barrel before stabilising closer to $90. Analysts warn the situation could worsen if the conflict continues, with some forecasts suggesting oil prices could climb as high as $200 per barrel in extreme scenarios.
Governments resort to emergency fuel-saving measures
Across Asia, governments are already introducing emergency measures to curb fuel demand.
Countries including Thailand, Vietnam, Pakistan and Philippines have encouraged working from home, introduced four-day working weeks for government employees, and restricted official travel in an effort to conserve fuel supplies.
In some cases, authorities have taken more unusual steps, such as instructing civil servants to avoid using lifts, adjusting air conditioning temperatures, and limiting business travel.
The measures reflect Asia’s heavy reliance on Middle Eastern energy supplies. Japan sources roughly 90 per cent of its oil from the region, while South Korea relies on it for around 70 per cent.
Ripple effects for global retail
For UK retailers, the immediate concern is not fuel shortages but the economic ripple effects of sustained energy price increases.
Higher oil prices tend to feed rapidly into transportation, manufacturing and logistics costs, key components of retail supply chains. The sector has only recently emerged from the inflationary pressures caused by the energy shock following Russia’s invasion of Ukraine in 2022.
Retail stocks have already reacted to the renewed uncertainty. Shares in companies including Inditex and Marks & Spencer fell earlier this week as investors assessed the potential impact of rising fuel and energy prices on consumer spending and operating costs.
Recession risk for the UK economy
Research from consultancy Oxford Economics suggests that if oil prices rise from around $97 to $140 per barrel and remain elevated for several months, global GDP could decline by 0.7 per cent by the end of the year.
In that scenario, inflation would climb to around 5.1 per cent globally, with the UK likely to see price pressures emerge later in the year due to the lag in domestic energy price adjustments.
The analysis suggests the Bank of England could be forced to raise interest rates again to contain inflation, a move that would further weigh on consumer spending.
Economists warn that the combination of higher energy costs, increased borrowing costs and weakened consumer confidence could push the UK into recession if the conflict persists.
Business groups are already warning about the broader commercial impact.
The Institute of Chartered Accountants in England and Wales said rising energy costs and supply chain disruption linked to the conflict are emerging as the biggest threats facing businesses.
Chief executive Alan Vallance said the situation highlights the UK’s economic exposure to instability in the Middle East.
“Our data shows that rising energy costs and supply chain disruption are the biggest threats to businesses right now as the conflict continues to escalate,” he said.
A fragile moment for retail
For the retail sector, the timing is particularly challenging.
Consumer demand across the UK and Europe has already been weakened by prolonged inflation and higher interest rates, leaving little room for further price increases without risking a slowdown in spending.
Retailers may therefore face a difficult balancing act if energy costs continue to rise, absorbing higher operational costs while attempting to protect fragile consumer confidence.
The pace at which global shipping through the Strait of Hormuz resumes, and whether oil markets stabilise in the coming weeks, will likely determine whether the current disruption becomes a temporary shock or the beginning of a broader economic downturn.
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